Deck 25: Checks and Banking in the Digital Age

Question 1

The rights and duties of a bank and its customer are contractual. 

Answer 1

True

Question 2

A written stop payment order is only valid for thirty days. 

Answer 2

False

Question 3

A drawer is liable to the holder of a check in a civil suit if the check is dishonored for insufficient funds.

Answer 3

True

Question 4

When a customer deposits cash into a checking account,he or she becomes a debtor for the amount deposited. 

Question 5

When a bank draws a check on itself,the check is called a cashier's check. 

Question 6

A customer can stop payment on a check that has been certified or accepted by a bank. 

Question 7

Only a customer or a person authorized to draw on an account can order a bank not to pay a check when it is presented for payment. 

Question 8

The incompetence of a customer revokes a bank's authority to pay an item. 

Question 9

A customer can escape liability for failing to notify the bank of forged or altered checks when the customer can prove that the bank was negligent. 

Question 10

A forged signature is effective as the signature of a drawer to the extent that is resembles the drawer's actual signature. 

Question 11

A bank is NOT obligated to pay an uncertified check presented less than six months from its date.

Question 12

A bank's responsibility to honor its customers' checks is NOT absolute.

Question 13

A check is a special type of draft. 

Question 14

The death of a customer immediately revokes a bank's authority to pay an item.

Question 15

The Uniform Commercial Code regulates checks. 

Question 16

A certified check is a check that has been accepted by the bank on which it is drawn. 

Question 17

An agency relationship arises between the customer and the bank when the customer writes a check on his or her account. 

Question 18

Any failure of a bank to honor a check because it would create an over-draft is a wrongful dishonor. 

Question 19

A check that is presented for payment more than six months from its date is a stale check. 

Question 20

Commercial banking practices consider a check that has been outstanding for three months to be a stale check. 

Question 21

A customer has two days to discover and notify the bank of any error on the monthly statement involving an electronic transfer of funds. 

Question 22

The first bank to receive a check for payment is the intermediary bank.

Question 23

Each bank in a collection chain must pass a check on before midnight of the day of its receipt.

Question 24

Any local check deposited must be available for withdrawal by check or as cash within one business day from the date of deposit. 

Question 25

The Federal Reserve System acts as a clearinghouse where banks exchange checks.

Question 26

Smart cards carry and process security programming. 

Question 27

Financial institutions that exchange digital images of checks must also send the original paper checks.

Question 28

A substitute check is a paper reproduction of the front and back of an original check that contains all the same information required on checks for automated processing. 

Question 29

Drew signs a check "pay to the order of East State University" drawn on Drew's account in Fidelity Bank to pay her tuition.Drew is​ 

A) ​none of the choices. 
B) ​the drawee. 
C) ​the drawer. 
D) ​the payee.

Question 30

The Check Clearing in the 21st Century Act (Check 21)applies only in about 75 percent of the states. 

Question 31

Ian buys a cell phone in Jiffy Mart,using the means that accounts for more retail payments than any other.This means of payment is 

A) ​a commercial check. 
B) ​a debit card. 
C) ​a personal check. 
D) ​a cash.

Question 32

A customer must examine a bank statement and report any discovered forged signature to recover from the bank for the forgery. 

Question 33

TriState Bank agrees to accept a check by setting aside sufficient funds to cover the amount.This check is considered 

A) ​cashed. 
B) ​certified. 
C) ​deposited. 
D) ​provisionally credited.

Question 34

When a bank pays a check on which the drawer's signature is forged,generally the customer suffers the loss. 

Question 35

Today,most checks are processed manually. 

Question 36

A bank that pays a customer's check bearing a forged indorsement is not obligated to recredit the customer's account. 

Question 37

Albert buys a surround sound system from his neighbor George at George's garage sale.Albert writes George a check for $250 for the sound system.George is​ 

A) ​none of the choices. 
B) ​the drawee. 
C) ​the drawer. 
D) ​the payee.

Question 38

A bank that encodes information on an item after its issue warrants to any subsequent bank that the information is correct.

Question 39

Stored-value cards are a form of digital cash.

Question 40

Keanu presents an instrument that states "pay to the order of Laura" to Mega Bank for payment.This instrument is the most common type of negotiable instrument,which is 

A) ​a certificate of deposit. 
B) ​a check. 
C) a note. 
D) ​a payment via a mobile device.

Question 41

Elton presents an uncertified check for payment more than six months after its date.The check was drawn by Dakota on her account in First Community Bank.The usual banking practice in such a case is to​ 

A) ​cash the check. 
B) ​consult the customer. 
C) ​refuse to cash the check. 
D) ​ask the payee what he or she would prefer.

Question 42

Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks.The bookstore deposits the check in its account in Eagle Bank.Like most checks,this check is​ 

A) ​a one-party instrument. 
B) ​a nonnegotiable instrument. 
C) ​a type of draft. 
D) ​not a substitute for cash.

Question 43

Ervin signs a check "pay to the order of Felicia" drawn on Ervin's account in Garden Valley Bank.Ervin later orders Garden Valley not to pay the check,but the bank pays it over Ervin's order.Subsequent checks written on Ervin's ac-count "bounce." Most likely liable for the costs to Ervin is​ 

A) ​any party to whom a subsequent check was written. 
B) ​Ervin. 
C) ​Felicia. 
D) ​Garden Valley Bank.

Question 44

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank.Caleb's forged signature is​ 

A) ​effective if an innocent third party accepts the check. 
B) ​effective to the degree that it matches Caleb's genuine signature. 
C) ​effective to the extent that Downtown Bank debits Caleb's account. 
D) ​not effective.

Question 45

Elmo pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service.This is​ 

A) ​a cashier's check. 
B) ​an overdraft. 
C) ​a stale check. 
D) ​a stop-payment order.

Question 46

Gillian writes a check to Harris as payment for a video game player but soon discovers the player is broken.She goes to the drawee bank and orally authorizes Ilene,a bank officer,to stop payment on the check.This order is valid for​ 

A) ​fourteen days. 
B) ​one year. 
C) ​six days. 
D) ​six months.

Question 47

Tomas writes a check for $1,000 drawn on Unified Bank and presents it to Viola.Viola presents the check for payment to Unified Bank,which dishonors it.The party most likely liable to Viola is​ 

A) ​Tomas in a civil suit. 
B) ​Tomas in a criminal prosecution. 
C) ​Unity Bank in a civil suit. 
D) ​none of the choices.

Question 48

Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank.Vela forges Tilly's indorsement,First Federal Bank cashes the check,and Vela disappears.United pays First Federal and debits Simon's account.Most likely,the ultimate loss will fall on​ 

A) ​Simon. 
B) ​Trudy. 
C) ​United Bank. 
D) ​First Federal Bank.

Question 49

Cleo writes a check for $100 drawn on Debit & Credit Bank and presents it to Elegant Jewelers for payment.If the check is not backed by sufficient funds,Cleo may be prosecuted for​ 

A) ​forgery. 
B) ​fraud. 
C) ​negligence. 
D) ​nothing.

Question 50

Del signs a check "pay to the order of Eppie" drawn on Del's account in First Federal Bank.Greta forges Eppie's indorsement.First Federal pays the check.Most likely​ 

A) ​Del will be liable for the amount. 
B) ​Eppie will have to pay Del for the amount. 
C) ​First Federal will have to recredit Del's account. 
D) ​the Federal Reserve will reimburse all parties for their costs.

Question 51

O'Shea issues a check drawn on Prime Bank to Quality Equipment Supply to pay for a backhoe.Later,O'Shea discovers a defect in the backhoe and orders the bank to stop payment on the check.O'Shea does not renew the order,and the bank clears the check eight months later.The bank​ 

A) ​must recredit O'Shea's account. 
B) ​must obtain funds from Quality Equipment to cover the amount of the check. 
C) ​must substitute acceptable goods. 
D) ​need not recredit O'Shea's account.

Question 52

Jacob writes Phillip an uncertified check for $500 on January 1.Seven months later,Phillip presents the check at the bank.The bank pays the check in good faith without consulting Jacob.The bank​ 

A) ​does not have the right to charge Jacob's account for $500. 
B) ​only has the right to charge Jacob's account for $250. 
C) ​has the right to charge Jacob's account for $500. 
D) ​can be held liable for breach of contract.

Question 53

Ellen pays State Bank $500 plus a service fee to draw a check on itself payable to Paul's Plumbing.Which of the following parties is responsible for paying the check? 

A) ​Only Ellen 
B) ​Both Ellen and State Bank 
C) ​Only State Bank 
D) ​None of the parties

Question 54

Mary writes a check drawn on County Bank for $400 "payable to Bill" on May 1.Mary dies on May 3.Bill presents the check to County Bank on May 5.County Bank​ 

A) ​may not pay the check. 
B) ​may pay the check. 
C) ​must consult with Mary's heirs before paying the check. 
D) ​must read Mary's will before paying the check.

Question 55

Horace can write checks on his account at InterCity Bank.Jemma steals the checks,forges Horace's signature,and cashes the checks at InterCity.The bank is excused from any liability if,after receipt of the first forged check,Horace fails to report the forgeries within​ 

A) ​fourteen days. 
B) ​one year. 
C) ​six days. 
D) ​six months.

Question 56

Amelia writes a check to Barry on her account at Community Savings Bank.The bank dishonors the check even though Amelia has sufficient funds in her ac-count.The bank is 

A) ​liable to Amelia. 
B) ​liable to itself. 
C) ​liable to the payee on Amelia's next check. 
D) ​not liable.

Question 57

Martha has a checking account with Hometown Bank.Martha signs a check "payable to Phillipa" drawn on Martha's Hometown Bank account.Hometown Bank is 

A) ​none of the choices. 
B) ​the drawee. 
C) ​the drawer. 
D) ​the payee.

Question 58

Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Uma's account in Verity Bank.Most likely,if the bank pays the check​ 

A) ​the Federal Reserve will reimburse all parties for their costs. 
B) ​the loss will be apportioned among all of Verity's customers. 
C) ​Uma will be liable for the amount. 
D) ​Verity will have to recredit Uma's account.

Question 59

Avis signs a check "pay to the order of Blythe" drawn on Avis's account in County Bank.Avis has $400 in her account but the amount of the check is $500,which the bank pays.This is​ 

A) ​a dishonored check. 
B) ​an overdraft. 
C) ​a postdated check. 
D) ​a stale check.

Question 60

Dhani signs a check "pay to the order of Etan" drawn on Dhani's account in First State Bank and dates the check "May 1." Etan presents the check to the bank for payment on December 15.This is​ 

A) ​a cashier's check. 
B) ​an overdraft. 
C) ​a certified check. 
D) ​a stale check.

Question 61

Smith & Jones Associates is a business customer of Superior Bank.Under federal law,Smith & Jones cannot demand​ 

A) ​any proof of payment except Superior's good faith. 
B) ​monthly statements. 
C) ​recrediting of its account on payment of a forged item. 
D) ​the return of its original checks with its monthly statements.

Question 62

Jackie inserts a debit card issued by her bank into a machine and keys in her personal identification number.She is then able to withdraw $500 in cash.Jackie is using 

A) ​an automated teller machine. 
B) ​a point-of-sale system. 
C) ​a direct deposit system. 
D) ​an Internet payment system.

Question 63

Fact Pattern 25-1Marlene loses her Neighborly Bank access card. She realizes her loss the next day but waits a week to call the bank. Meanwhile, Odell finds and uses Marlene's card to withdraw $3,000 from Marlene's account.
Refer to Fact Pattern 25-1.Marlene is responsible for​ 

A) ​$0. 
B) ​$50. 
C) ​$500. 
D) ​$3,000.

Question 64

On Monday,Michelle deposits in her account at Fiscal Bank a local check for $500.After 5:00 p.m.on Friday,from these funds,Michelle can withdraw no more than​ 

A) ​$100. 
B) ​$400. 
C) ​$500. 
D) ​$600.

Question 65

Best Banking Bank creates a paper reproduction of customer Sophie's check with the statement "This is a legal copy of your check.You can use it in the same way you would use the original check." This is​ 

A) ​a certified check. 
B) ​a cashier's check. 
C) ​a substitute check. 
D) ​a void check.

Question 66

Nick steals two checks from Pauline-a blank check and a check payable to the order of Retail Outlets Company,drawn on Pauline's account with State Bank.Nick forges Pauline's signature on the blank check and makes it payable to himself.Nick forges Retail Outlets's indorsement on the back of the check payable to Retail Outlets,and adds "Pay to the order of Nick." At United Credit Union,Nick indorses the back of both checks with his own name and gives them to United for cash.United does not know about the theft or the forged signatures and presents the checks to State Bank,which pays them.Pauline,who was not negligent,discovers the forgeries and asks State Bank to recredit her account.Who suffers the loss on each check?​

Question 67

On an automated teller machine (ATM)belonging to USA Bank,Sven placed a card-skimming device to pull information from the magnetic strips of users' debit cards.The device then transmitted the stolen data to thieves who used it to gain access to,and empty,the bank accounts of the users,including Megan.Megan learned of the theft the next day and promptly notified USA.Is Megan entitled to a recredit of her account for the most of the loss due to the theft? Explain.

Question 68

Clyde issues a check payable to Discount Mart.Emma,Discount's cashier,forges the store's indorsement and deposits the check in her bank ac-count.Clyde's bank,First State Bank,pays the check.Clyde can recover from​ 

A) ​Emma, but not First State Bank. 
B) ​First State Bank, which cannot recover from Emma. 
C) ​First State Bank, which can recover from Emma. 
D) ​no one.

Question 69

Fact Pattern 25-1Marlene loses her Neighborly Bank access card. She realizes her loss the next day but waits a week to call the bank. Meanwhile, Odell finds and uses Marlene's card to withdraw $3,000 from Marlene's account.
Refer to Fact Pattern 25-1.When Marlene receives her Neighborly Bank statement,she demands that the bank investigate the matter and recredit his account.The bank 

A) ​has no duty to investigate. 
B) ​must investigate and, if the dispute is not resolved within ten days, recredit Marlene's account (at least until the dispute is resolved). 
C) ​must investigate and immediately recredit Marlene's account (at least until the dispute is resolved). 
D) must investigate but need not recredit Marlene's account.

Question 70

Finance Bank receives a check drawn on the account of Get-Rich Industries,Inc.,one of the bank's customers,at 3 p.m.Friday.Hildy,the presenter of the check,is not one of the bank's customers.The bank uses deferred posting with a 2 p.m.cutoff hour.If it decides to dishonor the check,it must do so by midnight​ 

A) ​Saturday. 
B) ​Sunday. 
C) ​Monday. 
D) ​Tuesday.

Question 71

On Friday morning,Geoff deposits into his account at Heartland Bank a $500 check from Imelda,who also has an account at Heartland.On that same day,this check is considered​ 

A) ​cashiered. 
B) ​certified. 
C) ​paid. 
D) ​provisionally credited.

Question 72

Guaranty Bank receives a check drawn on the account of Get-Rich Industries,Inc.,one of the bank's customers,at 3 p.m.Friday.Garry,the presenter of the check,is not one of the bank's customers.The bank uses deferred posting with a 2 p.m.cutoff hour.If it decides to dishonor the check,it must do so by midnight​ 

A) ​Saturday. 
B) ​Sunday. 
C) ​Monday. 
D) ​Tuesday.